The agreement, for an undisclosed sum, covers 943 claims from women who work or worked in caring, cleaning and catering roles. Trade union UNISON, representing the women, said that the workers had historically been paid less than their male colleagues for doing work of equivalent value.
Similar cases have occurred in local authorities across the UK where historically certain roles, such as refuse collection and caring, have traditionally been carried out by only one gender.
The Court of Appeal was due to hear Bury Council's case, referred from the Employment Appeal Tribunal, in March.
Council leader Mike Connolly said that the agreement was intended to be "fair to current and former employees and also good value for the Bury taxpayer, whose money we have a duty to safeguard".
"I am pleased to announce that agreement has been reached with Unison which will mean settlement offers will now be going out to our employees and former employees. I hope that these offers will be accepted and that we can now move on and work together, as we always have, for the good of Bury and its people," he said.
The council has a further 138 equal pay claims outstanding from employees who are either not represented, or represented by different legal firms to the employees represented by Unison, he said.
Bury Council was the first local authority UNISON had raised a collective equal pay claim with, the union said.
"We are pleased that the council has at least accepted its responsibility to treat its women workers fairly. Most of the women's claims were first lodged in 2007, and for nearly five years the Council has been wasting precious public money trying to defend the indefensible," said Steve Stott, regional manager with UNISON.
Employment law expert Selwyn Blyth of Pinsent Masons, the law firm behind Out-Law.com, said that the case was further evidence of "a movement towards greater acceptance on behalf of local authorities that these cases are only worth running if you have a substantive legal point to argue".
"It is up to the employer to justify its historical pay arrangements on an objective basis, that has nothing to do with gender, and as I have said before courts are proving less likely to listen to these complex technical arguments," he said.
Earlier this month Edinburgh City Council reached a "multi-million pound" settlement with hundreds of female employees at a similar stage in the legal process. The Court of Session had recently upheld a 2008 Employment Appeal Tribunal decision in which the local authority had failed to strike down the women's claim using a "complex jurisdictional argument", Blyth said at the time.
Last year an equal pay test case involving dinner ladies and female care workers with Sheffield City Council, who had historically been excluded from a bonus system made available to male gardeners and street cleaners, was settled just before it was due to be heard by the Supreme Court. The council in that case had argued that the bonuses had nothing to do with gender but were paid to boost productivity.
Birmingham City Council, Europe's largest local authority, lodged an application for permission to appeal to the Supreme Court on a collective equal pay claim earlier this month. The council is arguing that the affected female workers are outside the time limit to pursue their claims for compensation, according to a BBC report.